The major market indices closed out another relatively quiet day on Friday, as traders looked ahead to the Fed’s Sept. 17 interest rate decision. On Friday, the futures market was pricing in a less-than-30% chance for a rate hike, placing the focus on October’s meeting. On the day, the Dow Jones Industrial Average took the lead with a gain of 0.63%, while the S&P 500 brought up the rear with a gain of 0.45%.
Option volume came in above average on Friday, with weekly September 11 option expiration driving activity on the day. Overall, puts gained in popularity, as the CBOE’s single-session equity put/call volume ratio rallied for a third-consecutive session to close at 0.81. The 10-day moving average ended its week-long decline, rising to 0.74.
Turning to equity options news, bearish commentary by Goldman Sachs on the oil supply glut sent shockwaves throughout the energy sector on Friday, with Petroleo Brasileiro Petrobras SA (NYSE:PBR) getting blasted by both stock and options traders.
Meanwhile, gold stocks remain in flux amid uncertainty ahead of the Fed’s rate decision, leading options traders to pile into IAMGOLD Corp (NYSE:IAG) puts at a rapid pace. Finally, unable to find a buyer for the whole company, Avon Products, Inc. (NYSE:AVP) considered selling stakes to outside investors.
Petroleo Brasileiro Petrobras SA (PBR)
PBR stock led the way lower on Friday for oil and energy stocks, shedding nearly 6% on the day. The energy sector was hammered after Goldman Sachs analysts said that the oil supply glut would only worsen, potentially sending crude down as low as $20 per barrel. Adding insult to injury, PBR bonds were cut to “junk” status following a downgrade of Brazil’s credit rating.
Piling on the bearish sentiment, options traders flooded PBR stock with put volume on Friday. Volume tagged a near-term high of 284,007 contracts for PBR, with puts snapping up a whopping 95% of the day’s activity. As a result of Friday’s selloff, PRB is now trading well below peak September put and call open interest of 13,627 contracts and 15,408 contracts, respectively.
IAMGOLD Corp (IAG)
Another commodities stock seeing rather unusual options activity on Friday was IAG. Gold stocks have been pushed lower in recent weeks, as traders exited the commodity ahead of an expected rate hike. While many on Wall Street are treating gold-sector stocks like the rate hike is a forgone conclusion, there could be a bump in stocks like IAG if the Fed stays its hand.
IAG’s stock and options activity on Friday may give some hint that traders are planning for a no-hike bounce. Specifically, IAG stock rallied roughly 1.4% on Friday, with the rise accompanied by a serious spike in put volume. In fact, virtually all of the 229,917 contracts traded on IAG on Friday crossed the tape as puts.
While it’s impossible to tell without additional information, these IAG puts could have been part of a married-put strategy, where the trader buys one at-(or near)-the-money put for every 100 IAG shares as a way to hedge their position. Currently, there are 11,747 puts open at the IAG September $2 strike.
Avon Products, Inc. (AVP)
Finally, Avon was punished on Friday after The Wall Street Journal reported that the company is in talks to sell a stake to an outside investor. While this would normally be seen as good news, to AVP investors it was seen as an admission that the company has been unable to find a suitor for the entire company.
With AVP down more than 60% year-to-date, stockholders are beginning to get agitated. Shares plunged more than 15% on Friday, with options traders following suit. On the day, some 127,000 AVP contracts changed hands, with puts snapping up 87% of the day’s take.
Looking at September options, peak put OI totals 5,075 put contracts at the at-the-money $3.50 strike, while another 2,532 are open at the $3 strike. On the call side, the $4 and $4.5 September strikes currently sport OI of 3,593 and 3,647 contracts, respectively.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
